Year after year, companies continue to do acquisitions despite data that suggests a majority of deals fail to realize their expected value. Although I believe the percentage of failures may be over-stated, we can certainly do better. While there are ideas on how to solve tactical issues – poor diligence, over-valuing synergies, failure to address potential cultural differences and many others – we believe focusing on three key principles will help mitigate these concerns and lead to an integration that meets or beats expectations.
First, Senior Management should clearly articulate the deal strategy and value drivers. This is critical from the time that a deal is approved and teams are engaged. This message will define the focus of and boundaries for diligence, pre-close planning and post-close execution. It is important to turn the public statements such as “market expansion” into actionable statements like “We are buying XYZ company to further expand our presence in the construction and heavy equipment markets in the US and Europe. We plan to combine our sales organizations into one cohesive team. We plan to incorporate XYZ’s products into our existing portfolio and leverage their strong after-sales service organization to provide a more complete offering for our customers.” Further, the messages should address how deeply all major functions and processes will be integrated. Finally, the synergy targets – and timeframes – should be stated. For example, “we will achieve a minimum of $25 million in annual synergies by the end of 2016.” Finally, key communications messages for employees, customers and other constituents should be provided. Everyone on the deal team – corporate and business unit – as well as the target once they are brought into the process – should be able to clearly articulate these core principles.
Second, using the above roadmap, focus on the issues that will make or break the deal. A key part of the diligence kick-off should cover the deal-breakers (go/no go decisions) and success factors (value drivers) and how they relate to their specific area. To complement the core diligence activities – such as quality of earnings, environmental, etc. – teams need to use their precious time to focus on the essential issues that will cause the deal to be terminated, change the valuation parameters, and drive the ultimate success of the integration. (As one of my colleagues often says, if the safety metrics are acceptable, don’t waste a lot of time doing a full safety audit during diligence.) Keeping the teams centered on these critical issues throughout diligence and pre-close planning will raise the odds for success while streamlining the process for you and the target.
Third, move with accountable speed. All things considered, a streamlined and focused decision-making process will lead to faster execution, which will in turn drive incremental value more quickly. In a recent study by KPMG, survey respondents said the major factor driving deal success was a well-executed 100-day integration plan. This requires a tight, disciplined, structured (not formal and bureaucratic) integration process (due diligence through execution) that facilitates rapid decision-making and issues resolution. Time and again, our clients have told us that they regret not having moved more quickly to achieve their integration objectives. Interestingly, many targets have also expressed dissatisfaction with the slow pace of integration. Their view is “Gee, these guys bought us, we don’t understand how this is going to work, what our role is and why they did the deal.”
If the deal strategy is clear, the teams are focused on the critical success factors and decisions are made at an accelerated pace, you can hit the ground running at close and realize value quickly and consistently. This “integrated integration process” will lead to a more successful deal.
Jeff Alvis is a Director of The Keystone Group, focusing in the areas of mergers and acquisitions, profit improvement and business strategy.